Huadian Power International : Circular

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt about any of the contents of this circular or as to what action to take in relation to this circular, you should consult your licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Huadian Power International Corporation Limited* (the "Company"), you should at once hand this circular and the proxy form and reply slip (which were despatched on 8 November 2019) to the purchaser(s) or the transferee(s) or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or the transferee(s).

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

華電國際電力股份有限公 司

Huadian Power International Corporation Limited*

(A Sino-foreign investment joint stock company limited by shares incorporated in the People's Republic of China

(the "PRC"))

(Stock Code: 1071)

CONTINUING CONNECTED TRANSACTIONS

Independent Financial Adviser to the

Independent Board Committee and the Independent Shareholders

A letter from the Board is set out on pages 4 to 13 of this circular. A letter from the Independent Board Committee is set out on pages 14 to 15 of this circular. A letter from the Independent Financial Adviser, containing its advice to the Independent Board Committee and the Independent Shareholders, is set out on pages 16 to 32 of this circular.

The notice convening the EGM of the Company to be held at 2:30 p.m. on Tuesday, 24 December 2019 at Huabin International Hotel, No. 4 Xuanwumennei Street, Xicheng District, Beijing, the PRC was despatched to the Shareholders on 8 November 2019.

If you are eligible and intend to attend the EGM, please complete and return the reply slip despatched on 8 November 2019 in accordance with the instructions printed thereon on or before Tuesday, 3 December 2019. Shareholders who intend to appoint a proxy to attend the EGM shall complete and return the proxy form despatched on 8 November 2019 in accordance with the instructions printed thereon not less than 24 hours before the time fixed for holding the EGM (i.e. before 2:30 p.m. on Monday, 23 December 2019) or any adjournment thereof (as the case may be). Completion and return of the proxy form will not preclude you from attending the EGM and voting in person if you so wish.

29 November 2019

		CONTENTS
			Page
Definitions . .	. . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Letter from Gram Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Appendix I	-	General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33

- i -

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions shall have the following meanings:

"associate"	has the meaning ascribed to it under the Hong Kong
	Listing Rules that apply to the Company;
"Board"	means the board of directors of the Company;
"China Huadian"	means China Huadian Corporation Ltd.* (中國華電集團
	有限公司), a wholly PRC State-owned enterprise, and the
	controlling shareholder of the Company, and where the
	context requires, means China Huadian and its
	subsidiaries and companies whose 30% or more equity
	interests are directly or indirectly held by China Huadian;
"Company"	means Huadian Power International Corporation
	Limited* (華電國際電力股份有限公司), a Sino-foreign
	investment joint stock company limited by shares
	incorporated in the PRC, whose H shares and A shares are
	listed on the Hong Kong Stock Exchange and the
	Shanghai Stock Exchange, respectively;
"connected person(s)"	has the meaning ascribed to it under the Hong Kong
	Listing Rules that apply to the Company;
"controlling shareholder"	has the meaning ascribed to it under the Hong Kong
	Listing Rules that apply to the Company;
"Directors"	means the directors of the Company;
"EGM"	means the extraordinary general meeting of the Company
	to be held at 2:30 p.m. on Tuesday, 24 December 2019 at
	Huabin International Hotel, No. 4 Xuanwumennei Street,
	Xicheng District, Beijing, the PRC;
"Existing Fuel, Equipments and	means the fuel, equipments and services purchase
Services Purchase (Supply)	(supply) framework agreement entered into between
Framework Agreement"	China Huadian and the Company on 2 November 2018 in
	relation to the mutual supply of coal and provision of
	products and services between China Huadian and the
	Group, the principal terms of which have been disclosed
	in the announcement of the Company dated 2 November
	2018 and the circular of the Company dated 28 November
	2018;

- 1 -

	DEFINITIONS
"Group"	means the Company and its subsidiaries;
"Hong Kong"	means the Hong Kong Special Administrative Region of
	the PRC;
"Hong Kong Listing Rules"	means the Rules Governing the Listing of Securities on
	The Stock Exchange of Hong Kong Limited;
"Hong Kong Stock Exchange"	means The Stock Exchange of Hong Kong Limited;
"Independent Board Committee"	means the independent committee of the Board appointed
	to advise the Independent Shareholders on the Proposed
	Fuel, Equipments and Services Purchase (Supply)
	Framework Agreement and related matters pursuant to
	the requirements of the Hong Kong Listing Rules;
"Independent Financial Adviser"	means Gram Capital Limited, a licensed corporation to
or "Gram Capital"	carry out Type 6 (advising on corporate finance)
	regulated activity under the SFO and the independent
	financial adviser to the Independent Board Committee
	and the Independent Shareholders in relation to the
	transactions contemplated under the Proposed Fuel,
	Equipments and Services Purchase (Supply) Framework
	Agreement;
"Independent Shareholders"	means the Shareholders who are not required to abstain
	from voting on the resolutions for approving the
	Proposed Fuel, Equipments and Services Purchase
	(Supply) Framework Agreement, the continuing
	connected transactions thereunder and their respective
	proposed annual caps;
"Latest Practicable Date"	means 25 November 2019, being the latest practicable
	date prior to the printing of this circular for ascertaining
	certain information contained herein;
"Miscellaneous and Relevant	has the meaning ascribed to it under section II in the
Services"	Letter from the Board of this circular;
"PRC"	means the People's Republic of China;

- 2 -

	DEFINITIONS
"Proposed Fuel, Equipments and	means the fuel, equipments and services purchase
Services Purchase (Supply)	(supply) framework agreement entered into between
Framework Agreement"	China Huadian and the Company on 1 November 2019 in
	relation to the mutual supply of fuel and provision of
	products and services between China Huadian and the
	Group;
"RMB"	means Renminbi, the lawful currency of the PRC;
"SFO"	means Securities and Futures Ordinance (Chapter 571 of
	the Laws of Hong Kong), as amended, supplemented or
	otherwise modified from time to time;
"Share(s)"	means share(s) with a par value of RMB1.00 each in the
	share capital of the Company;
"Shareholder(s)"	means the shareholders of the Company;
"subsidiary(ies)"	has the meaning ascribed to it under the Hong Kong
	Listing Rules that apply to the Company; and
"%"	means per cent.

• For identification purpose only

- 3 -

LETTER FROM THE BOARD

華電國際電力股份有限公 司

Huadian Power International Corporation Limited*

(A Sino-foreign investment joint stock company limited by shares incorporated in the People's Republic of China

(the "PRC"))

(Stock Code: 1071)

Directors:	Office address:
Wang Xuxiang (Chairman, Executive Director)	No. 2 Xuanwumennei Street
Tian Hongbao (Vice Chairman, Executive Director)	Xicheng District
Ni Shoumin (Vice Chairman, Non-executive Director)	Beijing, the PRC
Gou Wei (Non-executive Director)
Chen Haibin (Non-executive Director)	Place of business in Hong Kong:
Tao Yunpeng (Non-executive Director)	31/F, Tower Two
Wang Xiaobo (Non-executive Director)	Times Square
Chen Cunlai (Executive Director)	1 Matheson Street
Ding Huiping (Independent Non-executive Director)	Causeway Bay
Wang Dashu (Independent Non-executive Director)	Hong Kong
Wang Chuanshun (Independent Non-executive Director)
Zong Wenlong (Independent Non-executive Director)
	29 November 2019
To the Shareholders,
Dear Sir/Madam,

CONTINUING CONNECTED TRANSACTIONS

1. INTRODUCTION

References are made to the announcements of the Company dated 1 November 2019 and 22 November 2019 in relation to the continuing connected transactions.

The purpose of this circular is to provide the Shareholders with information in respect of resolutions regarding the continuing connected transactions under the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement and their respective proposed annual caps to be proposed at the EGM to enable the Shareholders to make their informed decisions as to how to vote at the EGM.

- 4 -

LETTER FROM THE BOARD

1. PROPOSED FUEL, EQUIPMENTS AND SERVICES PURCHASE (SUPPLY) FRAMEWORK AGREEMENT

1. Major Terms

The major terms of the Proposed Fuel, Equipments and Services Purchase (Supply)

Framework Agreement are set out below:

Date:	1 November 2019
Parties:	the Company;
	and China Huadian
Term:	One (1) year commencing from 1 January 2020 and expiring on
	31 December 2020
Transactions:	Products and services provided by China Huadian to the Group
	(1) supply of fuel by China Huadian to the Group;
	(2) provision of engineering equipments (including but not limited
	to transducers, recycled water and desulphurisation systems),
	systems, products, engineering and construction contracting
	projects and environmental protection system renovation
	projects by China Huadian to the Group;
	(3) provision of supplies procurement services and miscellaneous
	and relevant services by China Huadian to the Group, including:
	(i)	services in relation to the production and operation of the
		generating units of power plants, including overhauls and
		maintenance services, technological services such as
		testing of generating units and technology renovation and
		other services relating to production and operation;
	(ii)	financial agency service and property transaction agency
		services in the process of capital operations;
	(iii)	CDM registration services for the development and
		operation of clean energy projects;
	(iv)	relevant quota (such as the quota on power generation
		rights and the quota of "replacing small units with larger
		units" on shutting down small generating units) services
		for the operation and project development of the Group;
	(v)	property management services for the leasing of Huadian
		Tower, the office building of the headquarters of the
		Company (the above (i) to (v), collectively
		"Miscellaneous and Relevant Services"); and

- 5 -

LETTER FROM THE BOARD

	Products and services provided by the Group to China Huadian
	(1)	supply of fuel by the Group to China Huadian; and
	(2)	provision of services such as overhauls and maintenance of
		generating units of power plants and alternative power
		generation and relevant quota services by the Group to China
		Huadian.
Price	The	consideration of the transactions under the Proposed Fuel,
determination	Equipments and Services Purchase (Supply) Framework Agreement
principles and	will be subject to mutual consent and confirmation by the parties to
internal	the	agreement, as well as determinations after arm's length
procedures:	negotiation with reference to the then market price and prevailing
	market conditions. The Company has adopted appropriate internal
	procedures to ensure that (i) for transactions involving the provision
	of the products and services by China Huadian to the Group, the
	terms of such transactions will be fair and reasonable and no less
	favourable to the Group than those provided by independent third
	parties; and (ii) for transactions involving the provision of the
	products and services by the Group to China Huadian, the terms of
	such transactions will be fair and reasonable and no more favourable
	to China Huadian than those provided to independent third parties.
	Mutual supply of fuel
	In practice, the then market price of the purchase and sale of coal is
	generally determined by the local spot market price as at the time of
	the purchase order. The local spot market price is usually determined
	with reference to the following principles:
	(1)	relevant quotations from two or more independent large-scale
		PRC coal enterprises; and
	(2)	if there are no relevant quotations, the coal price shall be
		determined by reference to certain independent coal price index,

including but not limited to, the Bohai Bay Thermal Coal Price Index, published on various coal industry websites including CQ Coal (秦皇島煤炭網) (http://www.cqcoal.com) and SX Coal (中國煤炭資源網) (http://www.sxcoal.com). According to the Notice on the Commissioning Operation of the Bohai Bay Thermal Coal Price Index (關於開展環渤海動力煤價格指數試 運行工作的通知) issued by the National Development and Reform Commission in 2010, Bohai Bay Thermal Coal Price Index is authorized and guided by the National Development and Reform Committee and is data collected and periodically published by Qinhuangdao Seaborne Coal Market Co., Ltd.. It is an index system which reflects the Free on Board price and price volatility of Bohai Bay thermal coal.

- 6 -

LETTER FROM THE BOARD

Regarding the internal procedure for the purchase of coal by the Group, the safety and operation management department of the Company shall assess the relevant quotations based on factors such as quality, locality and market conditions, in order to determine the appropriate price for the purchase of coal. If the transaction concerned is a connected transaction, the finance and assets department and the securities and compliance department of the Company shall also review such price based on the same assessment criteria to ensure the fairness of the prices of connected transactions.

In addition, the then market price of the sale of coal by the Group is also generally determined with reference to the local spot market price as at the time of the sales order. The local spot market price is usually determined with reference to the price for the sale of coal as set by the largest supplier of coal by production output in the relevant locality (such price is industry knowledge and a practice followed by other suppliers of coal, which the Company believes is reliable, and may be obtained through quotations for the purchase of coal as discussed above or through the network of the Company).

Regarding the internal procedure for the sale of coal by the Group, the safety and operation management department of the Company shall assess the sales price set by the above largest supplier of coal with reference to such factors as quality, the cost for the Company in producing or obtaining coal as well as the supply and demand of coal in the market, in order to determine the price for the sale of coal. If the transaction concerned is a connected transaction, the finance and assets department and the securities and compliance department of the Company shall also review such price based on the same assessment criteria, with the final approval being made by the deputy general manager of the Company.

In terms of purchasing natural gas, the price of natural gas is currently prescribed by the Chinese government uniformly. The gas-fired power generation enterprises under the Group purchase the natural gas required for power generation at the prices stipulated by the provincial Development and Reform Commission. If the Chinese government implements relevant policies, regulations or guidelines on changing such price, the price of natural gas purchased by the Group shall be adjusted accordingly from the implementation date of such policies, regulations or guidelines.

- 7 -

LETTER FROM THE BOARD

Other products and services provided by China Huadian to the Group

The consideration for the provision of products and main services by China Huadian to the Group as contemplated under the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement will be determined by reference to the following pricing principles:

1. pricing will be determined through a bidding process. The bidding process will adhere to the relevant laws and regulations including the Law of the PRC on Tenders and Bids (《中華人民 共和國招標投標法》). The Company will refer to the internal manual regarding the management of the project bidding process. As set out in the internal manual, the Company will make bid initiations setting out, among other things, the specifications and requirements (including technicality, quality and pricing) of the relevant projects of provision of services, the criteria for assessing the contractors, and the requirements for the bid price. The entire bidding process will be controlled and managed by the bid evaluation committee. The committee consists of a president, which is a position held by the deputy general manager of the Company, and members from various business departments of the Company including the safety and operation management department, the finance and assets department and the project management department. The bid evaluation committee of the Company will be responsible for (i) ensuring the adherence to the process as set out in the Law of the PRC on Tenders and Bids; and (ii) reviewing, evaluating and monitoring documents from contractors based on such factors as technicality, quality, pricing, reputation and aftersale services, as well as the requirements in the bid invitation. The bid evaluation committee shall then determine the successful bidder by taking into account the above factors for assessment; and
2. the bid price offered by the successful bidder under the abovementioned bidding process is subject to further arm's length negotiation between the Company and the successful bidder. Under such circumstances, the Company would make reference to the historical prices and pricing trends of the relevant services and products and ensure that the bid price offered by the successful bidder would be fair and reasonable to the Company and its Shareholders as a whole.

Services provided by the Group to China Huadian

The consideration for the provision of services by the Group to China Huadian as contemplated under the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement will be determined with reference to (i) the costs incurred by the Group in providing such services; and (ii) the service fees charged by the Group to independent third parties in providing similar services.

- 8 -

LETTER FROM THE BOARD

	Regarding the internal procedure for the provision of services by the
	Group to China Huadian, the relevant business department of the
	Company providing the relevant services shall propose a service fee
	for the provision of such services with reference to the
	abovementioned factors. Since the transaction concerned constitutes
	a connected transaction of the Company, the finance and assets
	department and the securities and compliance department of the
	Company shall also review such service fees based on the same
	assessment criteria, with the final approval made by the deputy
	general manager of the Company responsible for the relevant service
	line.
Condition	The Proposed Fuel, Equipments and Services Purchase (Supply)
precedent:	Framework Agreement is conditional upon Independent
	Shareholders' approval at the EGM.

2. Historical Amounts

The actual amounts and the annual caps of the historical transactions under the Existing Fuel, Equipments and Services Purchase (Supply) Framework Agreement for the two (2) years ended 31 December 2018, and for the nine (9) months ended 30 September 2019 are set out below:

					Actual	Annual
					amount for	cap for
	For the year ended	For the year ended	the nine	the year
Transactions	31 December 2017	31 December 2018	months ended	ending
	Actual	Annual	Actual	Annual	30 September	31 December
	amount	cap	amount	cap	2019	2019
	(RMB	(RMB	(RMB	(RMB	(RMB	(RMB
	millions)	millions)	millions)	millions)	millions)	millions)
Expenditure
(a) Purchase of fuel from China
Huadian	3,889	6,000	3,347	7,000	4,008	7,000
(b) Provision of engineering
equipments, systems,
products and engineering
and construction
contracting,
environmental protection
system renovation project
and Miscellaneous and
Relevant Services by
China Huadian	4,810	5,000	5,287	7,000	1,776	8,000
Revenue
(c) Sale of fuel and relevant
services to China Huadian	10,729	12,000	11,001	13,000	7,757	13,000

- 9 -

LETTER FROM THE BOARD

3. Proposed Annual Caps

The Directors propose the annual caps for the transactions contemplated under the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement for the year ending 31 December 2020 as follows:

		Proposed
		annual caps
		for the year
		ending
		31 December
Transactions	2020
		(RMB millions)
Expenditure
(a)	Purchase of fuel from China Huadian	7,000
(b)	Provision of engineering equipments, systems, products and
	engineering and construction contracting, environmental
	protection system renovation project and Miscellaneous and
	Relevant Services by China Huadian	8,000
		Total: 15,000
Revenue
(c) Sale of fuel and relevant services to China Huadian	13,000

Total: 13,000

In the process of estimating the annual caps for the purchase of fuel, engineering equipments and relevant services from China Huadian for the year ending 31 December 2020, the Company has considered: (i) the historical transaction amounts of such purchases under the Existing Fuel, Equipments and Services Purchase (Supply) Framework Agreement for the two

1. years ended 31 December 2018 and the nine (9) months ended 30 September 2019, and the estimation that the actual transaction amounts will climb close to the annual caps during the fourth quarter of 2019 due to the large amount of settlement in the fourth quarter, which is in line with the Company's previous practice that the majority of historical transaction amount were recorded in the fourth quarter of the financial year; (ii) possible fluctuation in coal price; (iii) increased fuel demand due to the newly installed coal-fired generating units which have commenced operations recently; and (iv) the Group's increasing demand for environmental protection related service due to its intensive implementation on the sealing of coal plant in Beijing-Tianjin-Hebei region and sewage treatment. More than 50% of the Company's coal-fired generating units are located in Beijing-Tianjin-Hebei region (including Shandong Province). Pursuant to the Action Plan for Tackling Air Pollution in Beijing-Tianjin-Hebei Region And Surrounding Areas (京津冀及周邊地區大氣污染綜合治理攻堅行動方案), in order to prevent dust pollution, the Company plans to implement intensively the sealing of coal

- 10 -

LETTER FROM THE BOARD

storage site in the Beijing-Tianjin-Hebei region in 2020 by covering the coal used for power generation with coal sheds. Pursuant to the Water Pollution Prevention and Control Action Plan (水污染防治行動計劃) issued by the State Council, thermal power plants, due to their large demand for water and drainage, shall save water for power generation, improve the recycling rate of circulating water and achieve "zero discharge" from the economic operation and environmental protection's perspective. Recently the implementation of such plan is becoming more stringent. The Company plans to increase its investment in sewage treatment and renovate the old sewage treatment facilities in 2020.

In the process of estimating the annual cap for the sale of fuel and related services to China Huadian for the year ending 31 December 2020, the Company has considered the historical transaction amount, China Huadian's estimated demand for related products and services in 2020 and the estimated stable supply capacity of the Company.

1. REASONS FOR AND BENEFITS OF EXTENSION OF THE EXISTING CONTINUING CONNECTED TRANSACTIONS

The coal mines of the Group and China Huadian are in different localities in which the mutual provision of coal may reduce the overall cost for the procurement of coal. In addition, a subsidiary of the Group is primarily engaged in coal trading services, through which the Group is able to enhance its bargaining power in the process of coal procurement by way of bulk procurement and sales, and reduce the overall cost for coal procurement of the Group accordingly. The mutual provision of relevant services between China Huadian and the Group provides more efficient allocation of labour (in that the timing for the needs of the relevant services which are generally of a maintenance nature may differ). Considering the long-term relationship between the Group and China Huadian, the Company considers that it is beneficial to continue to enter into the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement with China Huadian as such transactions have facilitated the growth of the principal business and installation capacity of the Group.

IV. HONK KONG LISTING RULES IMPLICATIONS

China Huadian is the controlling shareholder of the Company and thus a connected person of the Company under the Hong Kong Listing Rules. The connected transactions under the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement will be carried out on a continuing or recurring basis in the ordinary and usual course of business of the Group and accordingly constitute continuing connected transactions of the Company under the Hong Kong Listing Rules.

As one or more of the applicable percentage ratios (as defined under Rule 14A.06 of the Hong Kong Listing Rules) in respect of the transactions under the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement exceeds 5%, the transactions contemplated thereunder are subject to the reporting, announcement and Independent Shareholders' approval requirements under Chapter 14A of the Hong Kong Listing Rules.

- 11 -

LETTER FROM THE BOARD

The Directors propose to put forward the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement, the continuing connected transactions thereunder and their respective proposed annual caps for the Independent Shareholders' approval at the EGM.

China Huadian, which holds 4,534,199,224 issued A shares of the Company, representing approximately 45.97% of total issued share capital of the Company, and China Huadian Hong Kong Company Limited, its wholly-owned subsidiary, which holds 85,862,000 issued H shares of the Company, representing approximately 0.87% of total issued share capital of the Company, will abstain from voting for approving the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement, the continuing connected transactions thereunder and their respective proposed annual caps. Saved as mentioned above, to the best of the Directors' knowledge, information and belief, none of the other Shareholders has any material interest in the abovementioned transactions and therefore will be required to abstain from voting on the relevant resolutions at the EGM.

Given that Mr. Wang Xuxiang, Mr. Gou Wei, Mr. Chen Haibin and Mr. Tao Yunpeng, Directors of the Company, held positions in China Huadian, they have abstained from voting on the resolutions regarding the abovementioned transactions at the 22nd meeting of the eighth session of the Board. Save as mentioned above, no other Directors have any material interest in the abovementioned transactions and therefore no other Directors have abstained from voting on such Board resolutions.

The Independent Board Committee has been established pursuant to the Hong Kong Listing Rules to advise the Independent Shareholders on the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement and relevant matters. Gram Capital has been appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the same matters.

1. INFORMATION ON THE PARTIES
   Information relating to the Group

The Group is one of the largest comprehensive energy companies in China, which is principally engaged in the construction and operation of power plants, including large-scale efficient coal or gas-fired generating units and various renewable energy projects, and the development, construction and operation of coal mines.

Information relating to China Huadian

China Huadian, the controlling shareholder of the Company, directly and indirectly holds approximately 46.84% of total issued share capital of the Company as at the Latest Practicable Date. China Huadian is primarily engaged in power generation, heat production and supply, energy development of coal and other resources related to the power generation and relevant professional technical services.

- 12 -

LETTER FROM THE BOARD

VI. RECOMMENDATIONS

The Directors (including the independent non-executive Directors) are of the opinion that:

1. the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement as well as the continuing connected transactions contemplated thereunder are fair and reasonable, on normal commercial terms, in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole; and (ii) the related annual caps proposed under the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement are fair and reasonable. Accordingly, the Directors recommend the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM.

VII. FURTHER INFORMATION

Your attention is also drawn to the letter from the Independent Board Committee, the letter from Gram Capital and the additional information set out in the appendix to this circular.

Yours faithfully,

For and on behalf of the Board

Huadian Power International Corporation Limited*

Wang Xuxiang

Chairman

• For identification purpose only

- 13 -

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

華電國際電力股份有限公 司

Huadian Power International Corporation Limited*

(A Sino-foreign investment joint stock company limited by shares incorporated in the People's Republic of China

(the "PRC"))

(Stock Code: 1071)

29 November 2019

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

We have been appointed to form the Independent Board Committee to consider and advise whether the terms of the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement as well as the continuing connected transactions contemplated thereunder are (i) fair and reasonable; (ii) on normal commercial terms and in the ordinary and usual course of business of the Group; and (iii) in the interests of the Shareholders as a whole. Gram Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and Independent Shareholders in relation to the transactions contemplated under the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement and the related proposed annual caps. Terms used herein shall have the same meaning as defined in this circular unless the context otherwise requires.

We wish to draw the attention of the Independent Shareholders to the letter from the Board, the letter from the Independent Board Committee and the letter of advice from Gram Capital, set out on pages 4 to 13, pages 14 to 15 and pages 16 to 32 of this circular, respectively.

Having considered the information contained in the letter from the Board and taking into account the advice and recommendation given by Gram Capital, we are of the view that (i) the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement, and the continuing connected transactions contemplated thereunder are fair and reasonable, on normal commercial terms, in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole; and (ii) the related annual caps proposed under the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement are fair and reasonable.

- 14 -

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Accordingly, we recommend the Independent Shareholders to vote in favour of the aforementioned agreement, the transactions contemplated thereunder and the related proposed annual caps at the EGM.

Yours faithfully,

Independent Board Committee of

Huadian Power International Corporation Limited*

Independent Non-executive Directors

Ding Huiping, Wang Dashu, Wang Chuanshun, Zong Wenlong

• For identification purpose only

- 15 -

LETTER FROM GRAM CAPITAL

Set out below is the text of a letter received from Gram Capital, the Independent Financial Adviser to the Independent Board Committee and the independent Shareholders in respect of the Fuel and Services Transactions for the purpose of inclusion in this circular.

Room 1209, 12/F.

Nan Fung Tower

88 Connaught Road Central/

173 Des Voeux Road Central

Hong Kong

29 November 2019

To: The independent board committee and the independent shareholders of Huadian Power International Corporation Limited*

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the transactions contemplated under Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement with China Huadian, details of which are set out in the letter from the Board (the "Board Letter") contained in the circular dated 29 November 2019 issued by the Company to the Shareholders (the "Circular"), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

On 1 November 2019, the Company entered into the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement with China Huadian. Pursuant to the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement, (i) China Huadian will supply fuel to the Group (the "Fuel Purchase Transactions"); (ii) China Huadian will provide engineering equipments (including but not limited to transducers, recycled water and desulphurisation systems), systems, products, engineering and construction contracting projects and environmental protection system renovation projects and Miscellaneous and Relevant Services to the Group (the "Services Transactions"); and (iii) the Group will sell fuel (the "Fuel Sale Transactions") and relevant services (including provision to China Huadian by the Group of services such as overhauls and maintenance of generating units of power plants and alternative power generation and relevant quota services) to China Huadian (the "Sale Transactions", together with the Fuel Purchase Transactions and the Services Transactions, the "Fuel and Services Transactions"), for a term of one year commencing from 1 January 2020 and expiring on 31 December 2020.

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LETTER FROM GRAM CAPITAL

With reference to the Board Letter, each of the Fuel and Services Transactions constitutes continuing connected transactions of the Company, and is subject to the reporting, announcement and independent Shareholders' approval requirements under Chapter 14A of the Hong Kong Listing Rules.

The Independent Board Committee comprising Mr. Ding Huiping, Mr. Wang Dashu, Mr. Wang Chuanshun and Mr. Zong Wenlong (all being independent non-executive Directors) has been established to advise the independent Shareholders on (i) whether the terms of Fuel and Services Transactions are on normal commercial terms and are fair and reasonable; (ii) whether the Fuel and Services Transactions are conducted in the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole; and (iii) how the independent Shareholders should vote in respect of the resolution(s) to approve the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement at the EGM.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations that have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as at the Latest Practicable Date. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us. Our opinion is based on the Directors' representation and confirmation that there is no undisclosed private agreements/arrangements or implied understanding with anyone concerning the Fuel and Services Transactions. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule 13.80 of the Hong Kong Listing Rules.

The Circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Hong Kong Listing Rules for the purpose of giving information with regard to the Company. The Directors having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement as contained in the Circular or the Circular misleading. We, as the Independent Financial Adviser, take no responsibility for the contents of any part of the Circular, save and except for this letter of advice.

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LETTER FROM GRAM CAPITAL

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company and China Huadian, and each of their respective subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the Fuel and Services Transactions. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change our opinion and we have no obligation to update this opinion to take into account events occurring after the Latest Practicable Date or to update, revise or reaffirm our opinion. In addition, nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

Lastly, where information in this letter has been extracted from published or otherwise publicly available sources, it is the responsibility of Gram Capital to ensure that such information has been correctly extracted from the relevant sources while we are not obligated to conduct any independent in-depth investigation into the accuracy and completeness of those information.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the Fuel and Services Transactions, we have taken into consideration the following principal factors and reasons:

Information on the Group

With reference to the Board Letter, the Group is one of the largest comprehensive energy companies in China, which is principally engaged in the construction and operation of power plants, including large-scale efficient coal or gas-fired generating units and various renewable energy projects, and the development, construction and operation of coal mines.

Set out below are the financial information of the Group for the six months ended 30 June

2019 and the two years ended 31 December 2018 as extracted from the Company's interim report for the six months ended 30 June 2019 (the "2019 Interim Report") and the Company's annual report for the two year ended 31 December 2018 (the "2018 Annual Report"), respectively:

	For the	For the	For the
	six months	year ended	year ended
	ended	31 December	31 December	Change from
	30 June	2018	2017	FY2017 to
	2019	("FY2018")	("FY2017")	FY2018
	RMB'000	RMB'000	RMB'000	%
	(unaudited)	(audited)	(audited)
Turnover	43,263,433	87,419,418	78,463,912	11.41
Operating Profit	4,297,375	6,268,605	4,378,937	43.15
Profit for the period/year
attributable to the equity
holders of the Company	1,637,885	1,445,736	435,905	231.66

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LETTER FROM GRAM CAPITAL

According to the above table, the Group recorded an increase of approximately 11.41% in turnover for the year ended 31 December 2018 as compared to that for the year ended 31 December 2017. With reference to the 2018 Annual Report, the aforesaid increase in revenue was mainly due to the increase in the power generation and the price of on-grid power. The Group recorded significant increase in profit for the year attributable to the equity holders of the Company for the year ended 31 December 2018.

1. FUEL AND SERVICES TRANSACTIONS

1. Background of Fuel and Services Transactions

Information on China Huadian

With reference to the Board Letter, China Huadian, the controlling Shareholder of the Company, directly and indirectly holds approximately 46.84% of total issued share capital of the Company. China Huadian is primarily engaged in power generation, heat production and supply, energy development of coal and other resources related to the power generation and relevant professional technical services.

Reasons for the Fuel and Services Transactions

With reference to the Board Letter, the Group and China Huadian are in different localities in which the mutual provision of coal may reduce the overall cost for the procurement of coal. In addition, a subsidiary of the Group is primarily engaged in coal trading services, through which the Group is able to enhance its bargaining power in the process of coal procurement by way of bulk procurement and sales, and reduce the overall cost for coal procurement of the Group accordingly. The mutual provision of relevant services between China Huadian and the Group provides more efficient allocation of labour (in that the timing for the needs of the relevant services which are generally of a maintenance nature may differ). Due to the long-term relationship between the Group and China Huadian, the Company considers that it is beneficial to continue to enter into the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement with China Huadian as such transactions have facilitated the growth of the principal business and installation capacity of the Group. Upon our enquiry, the Directors advised us that China Huadian Group and the Group had mutually provided the Fuel and Services Transactions (excluding natural gas) to each other for over nine years.

With reference to the 2019 Interim Report, the Group's total controlled installed capacity amounted to 53,542.5 MW, of which 40,885 MW was attributable to controlled coal-fired generating units; 6,411.1 MW was attributable to gas-fired generating units, and 6,246.4 MW was attributable to renewable energy generating units such as hydropower, wind power, solar power generating units. As such, the Directors advised us that coal is the major raw material of the Company for coal-fired power generation.

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LETTER FROM GRAM CAPITAL

As advised by the Directors, the Group's services providers relating to the provision of general contracting, operation and maintenance services and equipment are determined through a competitive bidding process, with China Huadian or its subsidiaries (the "China Huadian Group") as potential bidders. Taking into account that (i) China Huadian Group had built up extensive experience and kept reputable records in the market of project contracting, operation and maintenance services; (ii) historically, China Huadian Group provided project contracting services and sold power generation equipment to the Group. Compared with other independent third party service providers, China Huadian Group's established service network and long-term cooperation with the Group, China Huadian Group's more familiar with and better understanding in the Group's needs could provide better services to the Group; and (iii) China Huadian Group provided customized project contracting, operation and maintenance services and sold power generation equipment to the Group at competitive prices, which help the Group to reduce its cost for the Group, the Directors consider that the Services Transactions are beneficial to the Group.

As confirmed by the Directors, as the Fuel and Services Transactions have been entered into in the ordinary and usual course of business of the Group and on a frequent and regular basis, (i) it would be costly and impractical to make regular disclosure of each of the relevant transactions and obtain the prior approval from the independent Shareholders as required by the Hong Kong Listing Rules, if necessary; and (ii) service provider under the Services Transactions will be selected through a bidding process, by which all bidders (including the China Huadian Group) have to bid in accordance with the specific timetable, it may be impracticable to seek independent Shareholders' approval upon confirmation of China Huadian Group's successful bidding. Accordingly, the Directors are of the view that the Fuel and Services Transactions will be beneficial to the Company and the Shareholders as a whole.

Having considered the above factors, we consider the Fuel and Services Transactions are conducted in the ordinary and usual course of business of the Group and in the interest of the Company and the Shareholders as a whole.

2. Principal terms of the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement

Date:	1 November 2019
Parties:	the Company; and
	China Huadian
Existing Term:	One (1) year commencing from 1 January 2020 and expiring on
	31 December 2020

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LETTER FROM GRAM CAPITAL

Transactions: Products and services provided by China Huadian to the

Group

1. supply of fuel by China Huadian to the Group;
2. provision of engineering equipments (including but not limited to transducers, recycled water and desulphurisation systems), systems, products, engineering and construction contracting projects and environmental protection system renovation projects by China Huadian to the Group;
3. provision of supplies procurement services and miscellaneous and relevant services by China Huadian to the Group (the "Miscellaneous and Relevant Services"), including:
4. 1. services in relation to the production and operation of the generating units of power plants, including overhauls and maintenance services, technological services such as testing of generating units and technology renovation and other services relating to production and operation;
   2. financial agency service and property transaction agency services in the process of capital operations;
   3. CDM registration services for the development and operation of clean energy projects;
   4. relevant quota (such as the quota on power generation rights and the quota of "replacing small units with larger units" on shutting down small generating units) services for the operation and project development of the Group;
   5. property management services for the leasing of Huadian Tower, the office building of the headquarters of the Company; and

Products and services provided by the Group to China

Huadian

1. supply of fuel by the Group to China Huadian;

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LETTER FROM GRAM CAPITAL

1. provision of services such as overhauls and maintenance of generating units of power plants and alternative power generation and relevant quota services by the Group to China Huadian.

Price determination principles

The consideration of the transactions under the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement will be subject to mutual consent and confirmation by the parties to the agreement, as well as determinations after arm's length negotiation with reference to the then market price and prevailing market conditions. The Company has adopted appropriate internal procedures to ensure that (i) for transactions involving the provision of the products and services by China Huadian to the Group, the terms of such transactions will be fair and reasonable and no less favourable to the Group than those provided by independent third parties; and (ii) for transactions involving the provision of the products and services by the Group to China Huadian, the terms of such transactions will be fair and reasonable and no more favourable to China Huadian than those provided to independent third parties.

With reference to Rule 14A.56 of the Hong Kong Listing Rules, among other things, the auditors of the Company must provide a letter to the Board confirming whether anything has come to their attention that causes them to believe that the continuing connected transactions were not, in all material respects, in accordance with the pricing policies of the listed issuer's group if the transactions involve the provision of goods or services by the listed issuer's group. We obtained the letter from the Company's auditors (the "Auditors' Confirmation Letter"), showing their confirmation that, among other things, for transactions involving the provision of goods or services by the Group (including sale of coal and provision of services such as maintenance of generating units of power plants, alternative power generation and relevant quota services by the Group to China Huadian) for the year ended 31 December 2018, nothing has come to their attention that causes them to believe that the transactions were not, in all material respects, in accordance with the pricing policies of the Company.

Fuel Purchase Transactions and Fuel Sale Transactions

As set out in the Board Letter, in practice, the market price of the sale and purchase of coal is generally determined by the local spot market price as at the time of the purchase order. The local spot market price is usually determined with reference to the following principles:

1. relevant quotations from two or more independent large-scale PRC coal enterprises; and

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LETTER FROM GRAM CAPITAL

1. if there are no relevant quotations, the coal price shall be determined by reference to certain independent coal price index, including but not limited to, the Bohai Bay Thermal Coal Price Index, published on various coal industry websites including CQ Coal (秦皇島煤炭網) (http://www.cqcoal.com) and SX Coal (中國煤炭資源網) (http://www.sxcoal.com). According to the Notice on the Commissioning Operation of the Bohai Bay Thermal Coal Price Index (關
   於開展環渤海動力煤價格指數試運行工作的通知) issued by the National Development and Reform Commission in 2010, Bohai Bay Thermal Coal Price Index is authorized and guided by the National Development and Reform Committee and is data collected and periodically published by Qinhuangdao Seaborne Coal Market Co., Ltd.. It is an index system which reflects the Free on Board price and price volatility of Bohai Bay thermal coal.

For our due diligence purpose, we obtained three sets of invoices (the "Coal Invoices") for each of the purchase/supply of coal between (i) the Company and members of China Huadian Group; and (ii) the Company and independent third parties. We noted from the Coal Invoices that (i) the prices of coal offered by members of China Huadian Group were not higher than those offered by independent third parties to the Group; and

1. the prices of coal offered by the Group to members of China Huadian Group were not lower than those offered to independent third parties by the Group ("Our Findings on Coal Invoices").

As mentioned above, if there are no relevant quotations, the coal price shall be determined with reference to certain independent coal price indexes, including but not limited to, the Bohai Bay Thermal Coal Price Index. According to "Notice on the Commissioning Operation of the Bohai Bay Thermal Coal Price Index" (《關於開展環渤 海動力煤價格指數試運行工作的通知》), Bohai Bay Thermal Coal Price Index is authorized and guided by National Development and Reform Committee and is data collected and periodically published by Qinhuangdao Seaborne Coal Market Co., Ltd.. It is an index system which reflects the Free on Board price and price volatility of Bohai Bay thermal coal.

With reference to the Board Letter, in terms of purchasing natural gas, the price of natural gas is currently prescribed by the Chinese government uniformly. The gas-fired power generation enterprises under the Group purchase the natural gas required for power generation at the prices stipulated by the provincial Development and Reform Commission. If the Chinese government implements relevant policies, regulations or guidelines on changing such price, the price of natural gas purchased by the Group shall be adjusted accordingly from the implementation date of such policies, regulations or guidelines. For our due diligence purpose, we obtained government documents showing the current price of natural gas is formulated by the Chinese government.

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LETTER FROM GRAM CAPITAL

Services Transactions

With reference to the Board Letter, in practice, the consideration for Services Transactions is determined by reference to the following pricing principles:

1. pricing will be determined through a bidding process. The bidding process will adhere to the relevant laws and regulations including the Law of the PRC on Tenders and Bids (《中華人民共和國招標投標法》). The Company will refer to the internal manual regarding the management of the project bidding process. As set out in the internal manual, the Company will make bid initiations setting out, among other things, the specifications and requirements (including technicality, quality and pricing) of the relevant projects of provision of services, the criteria for assessing the contractors, and the requirements for the bid price. The entire bidding process will be controlled and managed by the bid evaluation committee. The committee consists of a president, which is a position held by the deputy general manager of the Company, and members from various business departments of the Company including the safety and operation management department, the finance and assets department and the project management department. The bid evaluation committee of the Company will be responsible for (i) ensuring the adherence to the process as set out in the Law of the PRC on Tenders and Bids; and (ii) reviewing, evaluating and monitoring documents from contractors based on such factors as technicality, quality, pricing, reputation and aftersale services, as well as the requirements in the bid invitation. The bid evaluation committee shall then determine the successful bidder by taking into account the above factors for assessment; and
2. the bid price offered by the successful bidder under the abovementioned bidding process is subject to further arm's length negotiation between the Company and the successful bidder. Under such circumstances, the Company would make reference to the historical prices and pricing trends of the relevant services and products and ensure that the bid price offered by the successful bidder would be fair and reasonable to the Company and its Shareholders as a whole.

In addition, the consideration for the provision of services by the Group to China Huadian as contemplated under the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement will be determined with reference to (i) the costs incurred by the Group in providing such services; and (ii) the service fees charged by the Group to independent third parties in providing similar services.

Upon our request, we obtained three sets of bidding documents relating to the Services Transactions and relevant signed contracts (the "Individual Contracts"). We noted from the aforesaid contracts and the respective bidding documents that (i) major pricing terms of the Individual Contracts are in line with those of the respective bidding documents; (ii) price offered by China Huadian Group is in compliance with its quotation in bidding documents; and (iii) such Individual Contracts were awarded based on winning bid basis ("Our Findings on Individual Contracts").

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LETTER FROM GRAM CAPITAL

Internal procedures

We noted that the Group adopted various measures to ensure the fair pricing of the Fuel and Services Transactions, in particular, the Group's various departments will be involved in the Fuel and Services Transactions before the entering into of the Fuel and Services Transactions. Details of which are set out under the section headed "Price determination principles and Internal procedures" of the Board Letter. We consider that the effectiveness of implementation of the measures will ensure the fair pricing of the Fuel and Services Transactions.

Having considered that (i) the Auditors' Confirmation Letter (as the case may be);

1. Our Findings on Coal Invoices; (iii) Our Findings on Individual Contracts and that the bidding process of Services Transactions are governed by Law of the PRC on Tenders and Bids, we do not doubt the effectiveness of implementation of the measures.

We have also reviewed the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement and the existing coal, equipments and services purchase (supply) framework agreement dated 2 November 2018 entered into by the same parties. We noted that, save for the duration and the maximum annual transaction amounts agreed by both parties in the above agreement, the principal terms of transactions under the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement are similar to the terms of the existing coal, equipments and services purchase (supply) framework agreement.

Having considered the above factors, we are of the view that the terms of the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement are on normal commercial terms and are fair and reasonable.

3. The proposed annual caps under the Fuel and Services Transactions

A. Purchase Cap

Set out below are (i) the historical transactions amounts of Fuel Purchase Transactions for the two years ended 31 December 2018 and for the nine months ended 30 September 2019 with existing/previous annual caps; and (ii) the proposed annual caps of Fuel Purchase Transactions for the year ending 31 December 2020:

	For the	For the	For the
	year ended	year ended	year ending
	31 December	31 December	31 December
Fuel Purchase Transaction	2017	2018	2019
	RMB'million	RMB'million	RMB'million
Historical transaction amounts	3,889	3,347	4,008 (Note)
Existing annual caps	6,000	7,000	7,000
Utilisation rate	64.8%	47.8%	N/A

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LETTER FROM GRAM CAPITAL

For the

year ending

31 December

2020

RMB'million

Proposed annual cap (the "Purchase Cap")

7,000

Note: the figure was for the nine months ended 30 September 2019

With reference to the Board Letter, when determining the Purchase Caps for the year ending 31 December 2020, the Directors took into account of certain factors. Details of the factors are set out under the section headed "3. Proposed Annual Caps" of the Board Letter.

We noted that the relevant utilisation rate of the previous annual caps were (i) approximately 64.8% and 47.8% respectively for the year ended 31 December 2017 and 31 December 2018 respectively; and (ii) for illustration purpose only, approximately 76.3% for the year ending 31 December 2019, based on annualized historical amount for the nine months ended 30 September 2019 (i.e. RMB4,008 million / (9 / 12) = approximately RMB5,344 million).

Despite that the utilization rates of the previous annual caps for the two years ended 31 December 2018 were not at high levels, the Company set the Purchase Cap for the year ending 31 December 2020 equal to the Purchase Cap for the year ending 31 December 2019. In this regard, we further enquired into the Directors and understood that the estimation was based on (i) coal demand of RMB6,000 million for the year ending 31 December 2020 (the "Coal Demand"), which is the same as the estimated demand on coal for each of the three years ending 31 December 2019; and (ii) other fuel demand of RMB1,000 million for the year ending 31 December 2020 (the "Other Fuel Demand").

According to the above table, the historical transaction amounts under the Purchase Transactions for FY2018 and nine months ended 30 September 2019 were approximately RMB3,347 million and RMB4,008 million respectively.

Coal Demand

For our due diligence purpose, we understood from the Directors the calculation of the Coal Demand (i.e. Coal Demand = Annual coal purchase volume (in tonne) x Estimated average price of coal). We further enquired into the Directors the details of the annual coal purchase volume (in tonne) and estimated average price of coal (i.e. RMB500 per tonne) for the year ending 31 December 2020.

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LETTER FROM GRAM CAPITAL

Based on information as provided by the Directors, the estimated coal purchase volume (in tonne) under the Fuel Purchase Transactions was approximately 13.3% of total estimated annual coal purchase volume (in tonne) for the year ending 31 December 2020. For our due diligence purpose, we enquired into the Directors the total historical coal purchase volume (in tonne) for FY2018 and FY2017. We noted that the estimated total coal purchase volume (in tonne) for the year ending 31 December 2020 was not substantially deviated from the total historical coal purchase volume (in tonne) for FY2018. In addition, the historical coal purchase volume (in tonne) from Huadian Group represented approximately 8.5% and 19.7% (average: 14.1%) to the total historical coal purchase volume (in tonne) for FY2018 and during the nine months ended 30 September 2019 respectively. As such, we consider that the estimated coal purchase volume (in tonne) under the Fuel Purchase Transactions for the year ending 31 December 2020 to be fair and reasonable.

In addition, based on 中國電煤價格指數 (China Thermal Coal Index*) as published by 價格監測中心 (Price Monitoring Centre*) under National Development and Reform Commission of the PRC, the estimated average price of the coal under the Fuel Purchase Transactions is close to the latest China Thermal Coal Index (i.e. RMB490 per tonne as at 18 October 2019).

In light of the above factors, we consider that Coal Demand for the year ending 31 December 2020 to be fair and reasonable.

Other Fuel Demand

As mentioned above, the estimated demand on other fuel is approximately RMB1,000 million for the year ending 31 December 2020.

We enquired into the Directors the estimation demand on other fuel and noted that such estimation was determined based on (i) the installed capacity of gas-fired generating units which are located in Tianjin and their estimated demand on gas (in cubic metres); and (ii) current price of natural gas as formulated by the local provincial government.

Upon our further enquiry, the Directors advised us the calculation of the estimated demand on gas (in cubic metres), which was calculated based on (i) the total installed capacity of gas-fired generating units; (ii) the estimated utilisation hours of the gas-fired generating units, which was based on historical utilisation hours of such generating units; and (iii) estimated consumption of gas for the purpose of generating one KWH power. Having considered and reviewed the calculation, we do not doubt the reasonableness of estimated demand on natural gas (in cubic metres).

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LETTER FROM GRAM CAPITAL

In addition, we obtained government document showing natural gas price as formulated by local government and noted that the Company adopted government formulated price of natural gas when determining the Other Fuel Demand.

In light of the above factors as well as that the Other Fuel Demand is less than the estimated demand on natural gas (in RMB) of the gas-fired generating units, we consider that Other Fuel Demand for the year ending 31 December 2020 to be fair and reasonable.

In light of that (i) Coal Demand for the year ending 31 December 2020 to be fair and reasonable; and (ii) Other Fuel Demand for the year ending 31 December 2020 to be fair and reasonable, we consider that the Purchase Cap for the year ending 31 December 2020 to be fair and reasonable.

1. Service Cap

Set out below are (i) the historical transactions amounts of Service Transactions for the two years ended 31 December 2018 and for the nine months ended 30 September 2019 with existing/previous annual caps; and (ii) the proposed annual cap of Service Transactions for the year ending 31 December 2020:

	For the	For the	For the
	year ended	year ended	year ending
	31 December	31 December	31 December
Services Transactions	2017	2018	2019
	RMB'million	RMB'million	RMB'million
Historical transaction amounts	4,810	5,287	1,776(Note)
Existing annual caps	5,000	7,000	8,000
Utilisation rate	96.2%	75.5%	N/A
			For the
			year ending
			31 December
			2020
			RMB'million
Proposed annual cap (the "Service Cap")		8,000
Note: the figure was for nine months ended 30 September 2019

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LETTER FROM GRAM CAPITAL

As advised by the Directors, when estimating the annual cap for the provision of engineering equipments, systems, products and engineering and construction contracting projects, supplies procurement services and other Miscellaneous and Relevant Services by China Huadian to the Group, the Directors took into account of certain factors. Details of the factors are set out under the section headed "3. Proposed Annual Caps" of the Board Letter.

We note that the relevant utilisation rate of the existing annual caps were approximately 96.2% and 75.5% respectively for the year ended 31 December 2017 and 31 December 2018 respectively. The utilisation rates of the existing annual caps were at relative high levels.

As advised by the Directors, the majority part of the Group's total estimated demand of the Service Transactions for the year ending 31 December 2020 is the possible demand on engineering and construction contracting services.

With reference to the 2019 Interim Report, as at 30 June 2019, the Group's major generating units which have been under construction are, (i) coal-fired generating units amounted to approximately 2,350MW; (ii) gas-fired generating units amounted to approximately 1,373.6MW; (iii) wind power generating units amounted to approximately 1,039.3MW and (iv) hydropower generating units amounted to 354 MW. The Directors further advised us the average cost unit per KW for construction of (i) coal-fired generating units; (ii) gas-fired generating units; (iii) wind power generating units and (iv) hydropower generating units as stated above. For our due diligence purpose, we enquired into the Directors the average cost unit per KW for construction of the aforesaid power generating units and noted that the estimated average cost unit per KW is in line with historical average cost unit per KW. The Service Cap for the year ending 31 December 2020 is less than implied total cost of aforesaid under construction projects.

In addition, we also enquired into the Directors the historical construction cost (including service provided by both connected parties and independent third parties) of the aforesaid power generating units for the year ended 31 December 2018 and noted that the Service Cap for the year ending 31 December 2020 is less than the aforesaid historical construction cost for the year ended 31 December 2018.

In light of the above factors and that there would also be possible demand on other services including overhauls and maintenance services, technology renovation, technological services, etc., we consider that the Service Cap for the year ending 31 December 2020 to be fair and reasonable.

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LETTER FROM GRAM CAPITAL

1. Sale Cap

Set out below are (i) the historical transactions amounts of Fuel Sale Transaction for the two years ended 31 December 2018 and for the nine months ended 30 September 2019 with existing/previous annual caps; and (ii) the proposed annual caps of Fuel Purchase Transactions for the year ending 31 December 2020:

	For the	For the	For the
	year ended	year ended	year ending
	31 December	31 December	31 December
Fuel Sale Transaction	2017	2018	2019
	RMB'million	RMB'million	RMB'million
Historical transaction amounts	10,729	11,001	7,757(Note)
Existing annual caps	12,000	13,000	13,000
Utilisation rate	89.4%	84.6%	N/A
			For the
			year ending
			31 December
			2020
			RMB'million
Proposed annual cap (the "Sale Cap")		13,000

Note: The figure was for the nine months ended 30 September 2019.

As advised by the Directors, when estimating the annual cap for the sale of fuel and provision of services such as overhauls and maintenance of generating units of power plants, alternative power generation and relevant quota services by the Group to China Huadian, the Directors took into account of certain factors. Details of the factors are set out under the section headed "3. Proposed Annual Caps" of the Board Letter.

We noted that the relevant utilisation rate of the existing annual caps were (i) approximately 89.4% and 84.6% respectively for the year ended 31 December 2017 and 31 December 2018 respectively; and (ii) for illustration purpose only, approximately 79.6% for the year ending 31 December 2019, based on annualized historical amount for the nine months ended 30 September 2019 (i.e. RMB7,757 million / (9 / 12) = approximately RMB10,342.7 million). The utilisation rates of the existing annual caps were at high levels.

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LETTER FROM GRAM CAPITAL

We enquired into the Directors the calculation of the possible sale of fuel (i.e. coal) to Huadian Group for the year ending 31 December 2020, which represented approximately 95% of the Sale Cap. We noted that such estimation was determined based on (i) estimated quantity of coals to be sold to China Huadian Group; and (ii) estimated average price of coal. We further enquired into the Directors the historical quantity of coals sold to Huadian Group for the year ended 31 December 2018 and noted that the estimated quantity of coals to be sold to China Huadian Group for the year ending 31 December 2020 was not deviated from the historical quantity of coals sold to Huadian Group for the year ended 31 December 2018.

We also noted that the estimated average price of coal under the Fuel Sale Transactions are the same as that under the Fuel Purchase Transactions, which is close to the latest China Thermal Coal Index.

With reference to the Board Letter, the Company has applied approximately 5% of the Sale Cap for the year ending 31 December 2020 to cover the possible demand of services by China Huadian Group such as overhauls and maintenance of generating units of power plants, alternative power generation and relevant quota services. Having considered that (i) the requirement for the aforesaid services would be determined by China Huadian Group; and (ii) the service provider would be selected by bidding process, we are of the view that approximately 5% of the Sale Cap for the year ending 31 December 2020 to cover the possible demand of aforesaid services to be acceptable.

Based on the above factors, we are of the view that the Sale Cap for the year ending 31 December 2020 to be fair and reasonable.

4. Hong Kong Listing Rules implication regarding the Fuel and Services Transactions

The Directors confirmed that the Company shall comply with the requirements of Rules 14A.53 to 14A.59 of the Hong Kong Listing Rules pursuant to which (i) the values of the Fuel and Services Transactions must be restricted by the Fuel and Services Caps for the period concerned under the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement; (ii) the terms of the Fuel and Services Transactions (including the Fuel and Services Caps) must be reviewed by the independent non-executive Directors annually; (iii) details of independent non-executive Directors' annual review on the terms of the Fuel and Services Transactions must be included in the Company's subsequent published annual reports and financial accounts.

Furthermore, it is also required by the Hong Kong Listing Rules that the auditors of the Company must provide a letter to the Board confirming, among other things, whether anything has come to their attention that causes them to believe that the Fuel and Services Transactions

1. has not been approved by the Board; (ii) was not, in all material respects, in accordance with the relevant agreement governing the transaction; and (iii) has exceeded the Fuel and Services Caps.

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LETTER FROM GRAM CAPITAL

In the event that the total amounts of the Fuel and Services Transactions are anticipated to exceed the Fuel and Services Caps, or that there is any proposed material amendment to the terms of the Fuel and Services Transactions, as confirmed by the Directors, the Company shall comply with the applicable provisions of the Hong Kong Listing Rules governing continuing connected transaction.

Given the above stipulated requirements for continuing connected transactions pursuant to the Hong Kong Listing Rules, we are of the view that there are adequate measures in place to monitor the Fuel and Services Transactions and thus the interest of the independent Shareholders would be safeguarded.

5. Recommendation on the Fuel and Services Transactions

Having taken into consideration the factors and reasons as stated above, we are of the opinion that (i) the terms of the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement are on normal commercial terms and are fair and reasonable; and (ii) the Fuel and Services Transactions are conducted in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the independent Shareholders to vote in favour of the resolution(s) to be proposed at the EGM to approve the Fuel and Services Transactions and we recommend the independent Shareholders to vote in favour of the resolution(s) in this regard.

Yours faithfully,

For and on behalf of

Gram Capital Limited

Graham Lam

Managing Director

• For identification purpose only

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APPENDIX I

GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Hong Kong Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. INTERESTS OF DIRECTORS, SUPERVISORS, CHIEF EXECUTIVE AND SENIOR MANAGEMENT

		Number of
		A shares of the
	Position	Company held as
Name	in the Company	personal interest	Capacity
Gou Wei	Non-executive Director	10,000(Note)	Beneficial owner

Note: Representing approximately 0.0001% of the total issued A shares of the Company as at the Latest Practicable Date.

Save as disclosed above, as at the Latest Practicable Date, so far as the Company is aware, none of the Directors, supervisors, chief executive or members of the senior management of the Company and their respective associates had any interests or short positions in the shares, underlying shares and/or debentures (as the case may be) of the Company and/or any of its associated corporations (within the meaning of Part XV of the SFO) which was required to be notified to the Company and the Hong Kong Stock Exchange pursuant to the provisions of Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which any such Director, supervisor, chief executive or member of senior management was taken or deemed to have under such provisions of the SFO), or which are required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which are required pursuant to the Model Code for Securities Transactions by Directors of Listed Companies as set out in appendix 10 to the Hong Kong Listing Rules to be notified to the Company and the Hong Kong Stock Exchange (which for this purpose shall be deemed to apply to the supervisors of the Company to the same extent as it applies to the Directors).

Four Directors, namely Mr. Wang Xuxiang, Mr. Gou Wei, Mr. Chen Haibin and Mr. Tao Yunpeng, who held positions in China Huadian, have abstained from voting on the relevant Board resolutions approving the Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement, the continuing connected transactions thereunder and their respective proposed annual caps. Mr. Peng Xingyu, a supervisor of the Company, holds position in China Huadian. Save as disclosed above, as at the Latest Practicable Date, none of the other Directors

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APPENDIX I

GENERAL INFORMATION

or supervisors of the Company was also a director or employee of a company which had an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO.

3. CONSENT AND QUALIFICATION OF EXPERT

Gram Capital has given and has not withdrawn its written consent to the issue of this circular with its letter of advice included in the form and context in which it appears.

The following sets out the qualifications of the Gram Capital:

Name	Qualifications
Gram Capital	Type 6 (advising on corporate finance) regulated activity as
	defined under the SFO

As at the Latest Practicable Date, Gram Capital did not have any shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, Gram Capital did not have any direct or indirect interest in any assets which had been, since 31 December 2018, being the date to which the latest published audited accounts of the Company were made up, acquired or disposed of by or leased to, or were proposed to be acquired or disposed of by or leased to, any member of the Group.

4. NO MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2018, being the date to which the latest published audited accounts of the Company were made up.

5. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors or supervisors of the Company had entered into any service contract with any member of the Group (excluding contracts expiring or determinable by the relevant member of the Group within one year without payment of compensation (other than statutory compensation)).

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APPENDIX I

GENERAL INFORMATION

6. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors or supervisors or their respective close associates (as defined under the Hong Kong Listing Rules) had any interest in other business which competes or is likely to compete with the business of the Group as if each of them were treated as a controlling shareholder of the Company under Rule 8.10 of the Hong Kong Listing Rules.

7. INTERESTS IN THE GROUP'S ASSETS OR CONTRACTS OR ARRANGEMENTS SIGNIFICANT TO THE GROUP

As at the Latest Practicable Date, none of the Directors or supervisors of the Company had any direct or indirect interest in any assets which had been since 31 December 2018 (being the date to which the latest published audited accounts of the Company were made up) acquired or disposed of by or leased to, or were proposed to be acquired or disposed of by or leased to, any member of the Group.

As at the Latest Practicable Date, none of the Directors or supervisors of the Company was materially interested in any contract or arrangement entered into by any member of the Group which was subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group.

8. MATERIAL LITIGATION

As at the Latest Practicable Date, certain members of the Group were a party to certain litigations arising from the ordinary course of business or assets acquisition. The likely outcome of these contingent liabilities, litigations or other legal proceedings cannot be ascertained at present, but the management of the Group believes that any possible legal liability which may result from the aforesaid cases will not have a material adverse effect on the financial position and operating results of the Group. Save as disclosed, as at the Latest Practicable Date, no other material litigation or claims were pending or threatened or made against the Group so far as the Directors are aware.

9. MISCELLANEOUS

1. The registered office of the Company is situated at No.14800, Jingshi Road, Jinan City, Shandong Province, the PRC.
2. The business office of the Company is situated at No. 2 Xuanwumennei Street, Xicheng District, Beijing, the PRC.
3. The Hong Kong H share registrar and H share transfer office of the Company is Hong Kong Registrars Limited situated at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Hong Kong.

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APPENDIX I

GENERAL INFORMATION

1. None of the websites appearing in or referred to in this circular or any of the information contained on any such websites forms part of this circular. Neither the Company nor any Director take any responsibility for any information contained on such websites or its accuracy.
2. The English text of this circular shall prevail over its Chinese text in the case of inconsistency.

10. DOCUMENTS AVAILABLE FOR INSPECTION

A copy of each of the (i) Existing Fuel, Equipments and Services Purchase (Supply) Framework Agreement; (ii) Proposed Fuel, Equipments and Services Purchase (Supply) Framework Agreement; (iii) the letter from the Board, the text of which is set out on pages 4 to 13 of this circular; (iv) the letter from the Independent Board Committee, the text of which is set out on pages 14 to 15 of this circular; and (v) the letter from the Independent Financial Adviser, the text of which is set out on pages 16 to 32 of this circular will be available for inspection at the offices of Toppan Vintage Limited, 8th Floor, Gloucester Tower, The Landmark, 15 Queen's Road Central, Central, Hong Kong during normal business hours on any weekday (except public holidays) from the date of this circular up to and including 13 December 2019.

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